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Aggregate Planning Chapter 11 Aggregate Planning Chapter 11

Aggregate Planning Chapter 11 - PowerPoint Presentation

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Aggregate Planning Chapter 11 - PPT Presentation

MIS 373 Basic Operations Management Learning Objectives After this lecture students will be able to Explain what aggregate planning is and how it is useful Identify the variables decision makers have to work with in aggregate planning ID: 659725

production inventory period worker inventory production worker period beginning cost costs 200 units unit firing hiring workforce 100 demand

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Slide1

Aggregate Planning

Chapter 11

MIS 373: Basic Operations ManagementSlide2

Learning Objectives

After this lecture, students will be able to

Explain what aggregate planning is and how it is useful.

Identify the variables decision makers have to work with in aggregate planning

.

Describe some of the graphical and quantitative techniques planners use.Prepare aggregate plans and compute their costs.Discuss aggregate planning in services.

MIS 373: Basic Operations Management

2Slide3

Motivations

McDonald's

Do you need to know the demand for each burger to plan your labor force?Slide4

The Planning Sequence

MIS 373: Basic Operations Management

Long-term planning

Intermediate-term planning

Short-term detailed planning

4Slide5

The Concept of Aggregation

Aggregate planning is essentially a “big-picture

” approach to planning. avoid focusing on individual products or services

focus

on a group of similar products or

servicesFor purposes of aggregate planning, it is often convenient to think of capacity in terms of labor hours or machine hours per period, or output rates (barrels per period, units per period), without worrying about how much of a particular item will actually be involved.MIS 373: Basic Operations Management

5Slide6

Aggregate Planning

The main idea behind aggregate planning:

Aggregate planning translates business plans into rough labor schedules and production plans

Issues to

consider

for aggregate planningProduction rate: “aggregate units” per worker per unit timeWorkforce level: available workforce in terms of hoursActual production: Production rate x Workforce levelInventory: Units carried over from previous periodsCosts: production, changing workforce, inventory

MIS 373: Basic Operations Management

6Slide7

Aggregate Planning

What does aggregate planning do?

Given an aggregate demand forecast , determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning

horizon

Why

do organizations need to do aggregate planning?It takes time to implement plans (e.g. hiring).It is not possible to predict with accuracy the timing and volume of demand for individual items

.Planning is connected to the budgeting process

which is usually

done annually on an aggregate

(e.g., departmental) level.It can help synchronize flow throughout the supply chain; it affects costs, equipment utilization; employment levels; and customer satisfactionMIS 373: Basic Operations Management7Slide8

Matching

Demand

and SupplyProactive

Alter demand to match supply (capacity

)

Among other approaches, we can alter demand by simply changing the price.ReactiveAlter supply (capacity) to match demandThrough capacity planning and aggregate planningMixedSome of each

MIS 373: Basic Operations Management

8Slide9

Demand Options

Pricing

Used to shift demand from peak to off-peak periodsPrice elasticity is importantPromotionAdvertising and other forms of promotion

Issue: response rate and response patterns. Less control over timing of demand (may worsen the problem by bringing demand at the wrong time).

Back orders (delaying order filling)

Orders are taken in one period and deliveries promised for a later periodPossible loss of sales, increased record keeping, lowered customer service levelNew demandOffer different products/services during off-peak periods.Yield (Revenue) ManagementMaximizing revenue by using a variable pricing strategy. Prices are set relative to capacity availability.

MIS 373: Basic Operations Management

9Slide10

Supply Options

Hire and layoff workers

May have upper or lower limitUnions/internal policies may prohibit layoffsSkill levelsAssociated costs (e.g., recruiting, training, severance-pay, morale)

Overtime

Overtime may result in lower productivity, poorer quality, more accidents, increased payroll costs

Part-time workersUsually low-to-moderate job skillsIndependent-contractorsInventoriesProduce in one period and sell in anotherCosts: holding and carrying cost, money tied up in inventory, insurance, obsolescence, deterioration, spoilage, breakage etc.SubcontractingLess control over output. Quality problems. Higher

costsMIS 373: Basic Operations Management

10Slide11

Aggregate Planning Supply Strategies

Level

capacity strategy: Maintaining

a

steady rate of regular-time output;

variations in demand are met by using inventories or other options such as overtime, part-time workers, subcontracting, and backordersChase demand strategy:

Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

MIS 373: Basic Operations Management

11Slide12

Level strategy

Capacities are kept constant over the planning horizonAdvantagesStable output rates and workforce

DisadvantagesGreater inventory (or other) costs

MIS 373: Basic Operations Management

12Slide13

Chase strategy

Capacities are adjusted to match demand requirements over the planning horizon

AdvantagesInvestment in inventory is lowLabor utilization in highDisadvantages

The cost of adjusting output rates and/or workforce levels

MIS 373: Basic Operations Management

13Slide14

Choosing a Strategy

Important factors:Company policy

Constraints on the available optionse.g., discourage layoffs, no subcontracting to protects secrets, union policies regarding over timeFlexibility

Chase flexibility may not be present for companies designed for high steady output (e.g., refineries, auto assembly)

Cost

Alternatives are evaluated in term of cost (while matching demand within the constraints).MIS 373: Basic Operations Management14Slide15

Example #1:

Chase demandBeginning Inventory: 0 units

Beginning Workforce: 5 workersProduction Rate: 10 units/worker/periodRegular Production Costs: $10/unitInventory Costs: $5/unit/periodHiring Cost: $200/worker

Firing Cost: $100/worker

MIS 373: Basic Operations Management

Period

1

2

3

45Demand403020506015Slide16

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

End Inventory

# Hired

# Fired

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

16

Beginning Inventory

Time Periods

# Hired in the beginning of a period

# Fired in the beginning of a periodSlide17

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

# Hired

# Fired

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

17

Recall the chase strategy:

Capacities

are adjusted to match demand requirements over the planning horizonSlide18

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

# Hired

0

# Fired

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

18Slide19

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

# Hired

0

0

# Fired

1

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

19Slide20

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

# Hired

0

0

0

# Fired

1

1

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

20Slide21

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

0

# Hired

0

0

0

3

# Fired

1

1

1

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

21Slide22

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand4030

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

0

0

# Hired

0

0

0

3

1

# Fired

1

1

1

0

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

22Slide23

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

0

0

0

# Hired

0

0

0

3

1

4

# Fired

1

1

1

0

0

3

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

23Slide24

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

0

0

0

# Hired

0

0

0

3

1

4

# Fired

1

1

1

0

0

3

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

24

One defining characteristics of the chase strategy is that we don’t have end inventory.

All we produced are/were sold.

No holding costSlide25

Example #1: Chase demand

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

30

20

50

60

200

End Inventory

0

0

0

0

0

0

# Hired

0

0

0

3

1

4

# Fired

1

1

1

0

0

3

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

TC=Production + Holding + Hiring + Firing

=

200*10 +

0

+

4*200 + 3*100 = $3,100

25Slide26

Exercise Problem

Perform aggregate planning using the chase strategy:

Beginning Inventory:

10

units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs:

$10/unit/period

Hiring Cost:

$100/worker

Firing Cost:

$200/worker

Period

1

2

3

4

5

Demand

50

40

30

30

40Slide27

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

End Inventory

# Hired

# Fired

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning InventorySlide28

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

# Hired

# Fired

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

We only produce 40 units because there are 10 units beginning inventory that we can use.

So, we can still meet

the demand

of 50 units.Slide29

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

0

# Hired

0

# Fired

1

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

The beginning workforce is 5 workers.

Since we only produce 40 units in this period and each worker can handle 10 units in a period

, we only need 4 works here.

 We hence fire 1 at the beginning of this period. Slide30

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

0

0

# Hired

0

0

# Fired

1

0

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/workerSlide31

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

0

0

0

# Hired

0

0

0

# Fired

1

0

1

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/workerSlide32

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

0

0

0

0

# Hired

0

0

0

0

# Fired

1

0

1

0

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/workerSlide33

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand50

403030

40

190

Production

40

40

30

30

40

180

End Inventory

0

0

0

0

0

0

# Hired

0

0

0

0

1

1

# Fired

1

0

1

0

0

2

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/workerSlide34

Solution:

chase strategy

10

1

2

3

4

5

Total

Demand5040

303040

190

Production

40

40

30

30

40

180

End Inventory

0

0

0

0

0

0

# Hired

0

0

0

0

1

1

# Fired

1

0

1

0

0

2

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

TC=Production + Holding + Hiring + Firing

= 180*10

+

5*10

+

1*100 +

2*200 Slide35

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

End Inventory

# Hired

# Fired

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

35Slide36

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

# Hired

# Fired

Total demand=40+30+20+50+60=200

Production per period=200/5=40

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

36

Recall the level strategy:

Capacities

are kept constant over the planning

horizon. So, Slide37

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

# Hired

0

# Fired

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

37Slide38

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

# Hired

0

# Fired

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

38

Fire 1 worker in this period because 4 workers are sufficient to produce 40 units in a period.Slide39

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

# Hired

0

0

# Fired

1

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

39Slide40

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

# Hired

0

0

0

# Fired

1

0

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

40Slide41

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

# Hired

0

0

0

0

# Fired

1

0

0

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

41Slide42

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

# Hired

0

0

0

0

0

# Fired

1

0

0

0

0

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

42Slide43

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

43Slide44

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

44

One defining characteristics of the level strategy is that we don’t need to adjust capacity (here, labor force), except for the initial period. Slide45

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

Beginning Inventory: 0 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory

Holding Costs

: $5/unit/period

Hiring Cost: $200/worker

Firing Cost: $100/worker

45

TC=Production + Holding + Hiring + Firing

But, how to calculate the holding cost?

 Average inventory in a periodSlide46

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

Average Inventory

0

5

20

25

10

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

We can estimate the holding cost by considering the average inventory in each period.

Regular

Production Costs: $

10/unit

Inventory

Holding Costs

:

$

5/unit/period

Hiring Cost: $

200/worker

Firing Cost: $100/worker

46

=(

0

+

10

)/2

=(

10

+

30

)/2Slide47

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

Average Inventory

0

5

20

25

10

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400

TC=Production + Holding + Hiring + Firing

Regular

Production Costs: $

10/unit

Inventory

Holding Costs

:

$

5/unit/period

Hiring Cost: $

200/worker

Firing Cost: $100/worker

47

=(

0

+

10

)/2

=(

10

+

30

)/2Slide48

Example #2: Level Capacity

MIS 373: Basic Operations Management

0

1

2

3

4

5

Total

Demand40

30

20

50

60

200

Production

40

40

40

40

40

200

End Inventory

0

10

30

20

0

60

Average Inventory

0

5

20

25

10

60

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400

TC=Production + Holding + Hiring + Firing

Regular

Production Costs: $

10/unit

Inventory

Holding Costs

:

$

5/unit/period

Hiring Cost: $

200/worker

Firing Cost: $100/worker

48

=(

0

+

10

)/2

=(

10

+

30

)/2Slide49

Exercise Problem

Perform aggregate planning using the level strategy:

Beginning Inventory:

10

units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs:

$10/unit/period

Hiring Cost:

$100/worker

Firing Cost:

$200/worker

Period

1

2

3

4

5

Demand

50

40

30

30

40

Two additional assumptions:

Unmet

demands

in a period can

be held

and fulfilled in a future

period

.

There is no cost associated with unmet demands.Slide50

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

End Inventory

Avg. Inventory

# Hired

# FiredSlide51

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

Total demand=190

Total

demand=190 – 10 = 180

Production per

period=180/5=36

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

Avg. Inventory

# Hired

# FiredSlide52

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

Avg. Inventory

3

# Hired

0

# Fired

1

By assumption

#1, unmet

demands in a period can be held and fulfilled in a future

period. So, we keep track on the unmet demands, and try to fulfill them in a future period.Slide53

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

Avg. Inventory

3

# Hired

0

# Fired

1

Avg. inventory = [10 + (-4)]/2 = 3Slide54

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

-8

Avg. Inventory

3

-6

# Hired

0

0

# Fired

1

0

-8 = (-4) + (-4)

Unmet demand from period #1 and from period #2Slide55

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

-8

-2

Avg. Inventory

3

-6

-5

# Hired

0

0

0

# Fired

1

0

0Slide56

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

-8

-2

4

Avg. Inventory

3

-6

-5

1

# Hired

0

0

0

0

# Fired

1

0

0

0Slide57

Solution:

chase strategy

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

-8

-2

4

0

Avg. Inventory

3

-6

-5

1

2

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/workerSlide58

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

Beginning Inventory

10

1

2

3

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

-4

-8

-2

4

0

Avg. Inventory

3

-6

-5

1

2

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

By assumption #2, there is no cost associated with unmet demand (i.e., negative inventory has no costs).

TC=Production + Holding + Hiring + Firing

= 180*10

+

10*(3+1+2) + 0 + 1*200 = $2,030Slide59

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

10123

4

5

Total

Demand

50

40

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

Avg. Inventory

# Hired

# Fired

Tim suggested another way to solve this problem.

 Pushing unmet demands to its next periodSlide60

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

1012

3

4

5

Total

Demand

50

40

44

30

30

40

190

Production

36

36

36

36

36

180

End Inventory

0

Avg. Inventory

5

# Hired

0

# Fired

1

Tim suggested another way to solve this problem.

Pushing unmet demands to its next period

Instead of -4 end inventory, here we have 0.

See that the demand for period #2 increase from 40 to 44.Slide61

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

1012

3

4

5

Total

Demand

50

40

44

30

38

30

40

190

Production

36

36

36

36

36

180

End Inventory

0

0

Avg. Inventory

5

0

# Hired

0

0

# Fired

1

0Slide62

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

1012

3

4

5

Total

Demand

50

40

44

30

38

30

32

40

190

Production

36

36

36

36

36

180

End Inventory

0

0

0

Avg. Inventory

5

0

0

# Hired

0

0

0

# Fired

1

0

0Slide63

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

1012

3

4

5

Total

Demand

50

40

44

30

38

30

32

40

190

Production

36

36

36

36

36

180

End Inventory

0

0

0

4

Avg. Inventory

5

0

0

2

# Hired

0

0

0

0

# Fired

1

0

0

0Slide64

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

1012

3

4

5

Total

Demand

50

40

44

30

38

30

32

40

190

Production

36

36

36

36

36

180

End Inventory

0

0

0

4

0

4

Avg. Inventory

5

0

0

2

2

9

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1Slide65

Solution:

chase strategy

Beginning Inventory: 10 units

Beginning Workforce: 5 workers

Production Rate: 10 units/worker/period

Regular Production Costs: $10/unit

Inventory Costs: $10/unit/period

Hiring Cost: $100/worker

Firing Cost: $200/worker

10123

4

5

Total

Demand

50

40

44

30

38

30

32

40

190

Production

36

36

36

36

36

180

End Inventory

0

0

0

4

0

4

Avg. Inventory

5

0

0

2

2

9

# Hired

0

0

0

0

0

0

# Fired

1

0

0

0

0

1

TC=Production + Holding

+ Hiring + Firing

= 180*10

+

10*9

+ 0 + 1*200 = $

2,090

While the TC number is different, this approach seems more intuitive than the previous approach, especially on the parts about inventory. Slide66

Aggregate Planning in Services

The aggregate planning process is different for services in the following ways: Most services cannot be inventoried

Demand for services is difficult to predictCapacity is also difficult to predictService capacity must be provided at the appropriate place and

time

Labor is usually the most constraining resource for services

MIS 373: Basic Operations Management66Slide67

Aggregate Planning in Services

Hospitals:allocate funds, staff, and supplies to meet the demands of patients for their medical services

Restaurants:smoothing the service rate, determining workforce size, and managing demand to match a fixed capacityPerishable inventory

Airlines:

complex due to the large number of factors involved (planes, flight & group personnel, multiple routes, airports etc.)

Capacity decisions must also take into account the percentage of seats to be allocated to various fare classes in order to maximize profit or yield (Revenue Management)MIS 373: Basic Operations Management67Slide68

Key Points

An aggregate plan is an intermediate-range plan for a collection of similar products or services that sets the stage for shorter-range plans

.Two aggregate planning supply strategies are 1) chase demand strategy and 2) level capacity strategy.

MIS 373: Basic Operations Management

68